BREAKING NEWS: RBA keeps rates on hold at 4.75%

The Reserve Bank has decided to keep the official interest rate on hold at 4.75%, in line with expectations.

Economists had predicted the RBA would keep rates steady due to low consumer confidence, even though last week’s inflation figures were higher than expected and above the RBA’s 2-3% target band.

In a statement, RBA governor Glenn Stevens said the pace of growth has slowed in the June quarter, and that “it is still not clear how persistent this slower growth will be”.

“The central scenario for the world economy over the next couple of years envisaged by most forecasters remains one of growth below the pace of 2010, but at or above long-term averages.”

“Downside risks have increased, however, as concerns have grown over the outlook for the public finances of both Europe and the United States.”

While Stevens said the terms of trade are now very high, and that national income has been rising, a full recovery of flood-affected production in the mining industry “now looks unlikely before early next year”.

Stevens also pointed out that employment growth has moderated, and that the unemployment rate has remained at 5% for some time.

He also noted inflation, saying that even though inflation is expected to dissipate after the impacts of natural disasters earlier this year, “the board remains concerned about the medium-term outlook for inflation”.

“It is appropriate under such circumstances for monetary policy to exert a degree of restraint. Most financial indicators suggest that it has been doing so, as a result of the Board’s decisions last year.”

“Credit growth has declined over recent months and is very subdued by historical standards, even with evidence of greater willingness to lend. Most asset prices, including housing prices, have also softened over recent months. The exchange rate is high. Each of these variables is affected by other factors as well, but together they point to financial conditions being tighter than normal.”

Stevens said the board decided to keep rates on hold, “particularly in view of the acute sense of uncertainty in global financial markets over recent weeks”.